Both the benchmark ASX 200 index and the broader All Ordinaries Index closed 0.3 per cent lower at 4,352 and 4,430 respectively.

Energy and resources shares weighed on results, but just 51 shares on the benchmark index managed to finish the day in positive territory as investors held their fire.

A surprise drop in wholesale prices has strengthened the chance the Reserve Bank will lower the official interest rate next month.

The Bureau of Statistics' latest Producer Price Index, a broad measure of business inflation, fell 0.3 per cent in the March quarter compared with the previous quarter.

The RBA has indicated that it may ease the cash rate from 4.25 per cent next month if official consumer inflation figures due tomorrow also are soft.

Elsewhere, figures from HSBC showed that a slowdown in China's manufacturing sector was easing, raising hopes that China's economy will slow at a sustainable pace.

Chinese government figures on manufacturing show the sector is growing, but HSBC's index tracking the sector indicates six months of contraction.

The major mining stocks were mixed; BHP Billiton gave up 0.5 per cent to $35.32, Rio Tinto finished steady at $66.66 and Fortescue Metals fell 1 per cent to $5.92.

The big four banks all ticked slightly higher with the exception of NAB, which lost 0.4 per cent to $25.08.

Cleaning firm Spotless was one of the best performers on the ASX 200; its shares rose 2.5 per cent to $2.46 after it announced it was still in talks on a $700 million takeover offer from private equity company Pacific Equity Partners.

And Telstra was buoyant, gaining 0.6 per cent to finish at $3.40.

The Australian dollar dropped against the US dollar and the Japanese yen after the business inflation figures were released and at 4:55pm (AEST) it was buying 103.3 US cents, 78.4 euro cents, 83.9 Japanese yen, 64.2 British pence and nearly $NZ1.27.

On commodity markets the spot gold price was steady at $US1,641.50 an ounce, West Texas Crude oil was worth $US103.60 a barrel and Tapis Crude oil was buying $US124.70 a barrel.